Report Provides Savings and Jobs for Charter Cites

With neither the state nor federal government able to produce a balanced budget with effective cuts in spending, local governments are now left to find innovative ways to save money, create more jobs and induce growth within their communities. 

The Associated Builders & Contractors, California Cooperation Committee has come up with a plan that will do just that for California’s chartered cities.

On Thursday, the ABC-CCC released a report that highlights the background, history and opportunities California’s 114 charter cities have to legally exempt themselves from paying state mandated prevailing wages for locally sponsored projects.  The report revealed that 58 percent of these cities do not take advantage of this flexibility, even though millions of dollars could be saved.

Kevin Dayton, ABC State Government Affairs Director, says the report could have beneficial implications.

“This will be an important resource for contractors, elected officials and staff,” Dayton said. “To the best of my knowledge, this is the first report of its kind.”

According to the ABC-CCC report, one of the most prominent ways for city governments to reduce spending and increase revenue is to exempt contractors from paying costly state-mandated prevailing wage rates on their own local projects.

Dayton said cities all over the state have been turning to exemptions, the most recent push coming from cities in San Diego County.

He said the state prevailing wage is much higher than the normal market wage, creating incentive for cities to either exercise their charter rights or become a charter city. 

Researchers for the report performed public records requests for each charter city to see what its prevailing wage situation was. The report showed that out of 114 charter cities, 67 did not exempt themselves at all from city municipal projects.

A chief goal of the report is to educate local officials about the opportunities that cities have to create more autonomy over their finances and make the most efficient use of taxpayer funds.

Efforts could lead to more jobs and growth in local economies by helping local construction interests to compete for many large, multi-million dollar projects.
It would also shine a light on the cities that have and haven’t taken the opportunity of the ‘Home Rule’ power the constitution gives them.

Article IX, Section 5 of the California Constitution makes this act of exemption legal. This power for charter cities to establish their own rules when governing their own municipal affairs is commonly called “Home Rule.”

As stated in the Charter Cities Report (click here to read the report), this past April, California’s 4th District Court of Appeal issued an opinion that allowed the city of Vista to legally apply its charter city status to exempt itself from state prevailing wage requirements.

The decision was made in response to the city being sued by the State Building and Construction Trade Council of California, AFL-CIO, an umbrella group for construction unions.

Executive Director of ABC-CCC, Kevin Korenthal, said the main point of the report is to inform the public and charter cities that they are not taking advantage of their ability to exempt themselves from unfairly calculated prevailing wages that would protect taxpayer funds and support local job creation.

“Many cities are not taking advantage of this,” Korenthal said. “We want to point out the inaccuracy of how the prevailing wage is determined and that, because prevailing wage is so high, it relates to a reduced number of locally run projects and reduced number of jobs that may be created by those public works projects.”

In a conference call, Modesto Councilwoman Janice Keating mentioned the positive effects that the charter city status has had on Modesto.

“Labor costs are 17 to 20 percent lower because of our exemption,” said Keating. “For public works projects alone, we’ve saved more than $1.2 million over the past five years. Cities need to take advantage of this.”

Keating further stated that the benefits of exemption are economically wise for charter cities.

“Exemption is significant because it saves taxpayers money and involves less paper work,” stated Keating. “Union and non-union businesses are competing and no pattern of bid winners is set in place. Ultimately, the playing field is even and everyone is working.”

Keating extended a word to other elected officials, especially in Sacramento.

“As a local elected official, I have taken to heart really balancing our budget, and this is one tool that we can use to accomplish that,” said Keating. “I would encourage our Governor to look more into this.”

Korenthal said he hopes California local administrators, like Keating, will take away the fundamental message that this report addresses.

“I would want public administrators to first understand what it means to be a charter city,” said Korenthal.

The report claims that the problem with California’s prevailing wage law is not necessarily its existence, but the methodology required in state law for determining prevailing wages.

“Prevailing wage is not determined by taking surveys of how employees or contractors are paid, nor is it an average or median wage,” said Dayton.

Dayton stated his frustration with current ways of calculating prevailing wages and says he has no hope in the state legislature to make any changes.

“The state almost never does surveys to see what employees are making,” said Dayton. “Instead the unions submit their collective bargaining agreements to the Department of Industrial Relations, and then bureaucrats and the Department go through it and determine the prevailing wage.

“That process creates some very miscalculated wages.”  

ABC-CCC contends that while a modal rate and the inclusion of all employer payments in union collective bargaining agreements might have produced an accurate prevailing wage in 1939, it certainly does not in 2009, when unions only represent about 20 percent of construction workers in California.

“Essentially, the prevailing wage is based on what the union members are earning and is extremely miscalculated,” said Korenthal.

“We’re not saying that all prevailing wages are bad. There may be projects in which it would be appropriate to have prevailing wages, but most cities are not even looking at the possibility of exempting from prevailing wages and really helping spur local economies.

“Those founders of charter cities understood that people down the road would be better off if they had more flexibility,” Korenthal said. “Charter cities have much more flexibility in their powers doing business than general law cities.”

Korenthal referenced a document from the League of California Cities about how charter cities rate against general law cities in several municipal ventures. The report can be seen here.

A charter city can exempt itself from state prevailing wage mandates through an initial charter or charter revision, an ordinance or a resolution. The report mentions that all methods have been used by general cities to become chartered.

Korenthal intends to follow up in the months ahead by reaching out to non-charter cities and charter cities that are not taking advantage of this opportunity.

“After having conversations with a number of cities, my impression is that elected officials are on the fence on this issue,” said Korenthal.

“We will continue to go to officials throughout the state and put together groups inside cities to convince them that this is a good idea.” 

Andrew Carico can be reached at acarico@publicceo.com

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